Insuring Insurers, Post 9/11

This week President Bush put his clout on the side of helping the insurance industry deal with the risk posed by terrorism.

He supported the idea of a federal "backstop" – essentially a government guarantee to pick up the tab when claims springing from an act of terrorism go beyond a certain dollar amount, presumably in the billions.

This idea can't be ignored. The economy may suffer if properties or businesses can't be insured because the risk from terrorism is too hard to calculate. Setting new premiums for terrorist coverage became uncharted territory after the mega losses from Sept. 11. Unlike hurricanes or tornadoes, which have a long history, such attacks are unknown quantities.

But researchers within the industry are thinking up ways to assess the risk – taking into account, for instance, not just the size of a building, but the degree of security surrounding it. A few companies are offering new terrorism policies – at a high premiums. The prices, however, have been going down. And the insurance meltdown some predicted when polices were up for renewal in January didn't happen. Many were simply renewed without full terrorism coverage.

Congress is off in two directions on the issue. The House passed a bill in January that would set up the sort of federal "backstop" Bush favors. The Senate stalled on the issue of whether to limit victims' right to sue. The president supports the limits on litigation, but Senate Democrats say they won't budge on that issue. That part of the legislation may have to be dropped to get the insurance aid passed.

Any such law should have a definite time limit, in case the terrorism threat fades. The government should take care not to weaken incentives to build better security into buildings, or insert itself too deeply in this industry.

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